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Wednesday, January 20, 2010

Time changes everything

Many people are highly cynical of the importance of history to the present and the future. "Why look back?" might be the catchphrase. Looking at history, though, does tell you many things. Perhaps the most important is that the world stays, more or less, the same but the fate of nations and people is volatile; and, inevitably, everything changes.

Understanding the process of change is one of the many complexities that nations and people must come to terms with to maintain their wealth and lifestyles (to the extent that they can).

The wealth of nations has been in constant evolution since nations (originally city states) began. The first wealth revolution was around agriculture and it was the reliable production of surplus food that enabled the division of labour that we now take for granted. Wealth in these early days was primarily driven by those who tamed the crops (and the rivers - for irrigation).

Soon enough the division of labour established the value of 'value-adding', which is to say the value of a developed or made product rather than a undeveloped natural resource. Nevertheless, wealth still belonged to those that had grain. The funny thing about technology is that, despite valiant attempts to keep it secret, the use of it inevitably leads to the wider access of that technology, and also to the development of the technology's inevitable replacement. It spreads and it spreads quite naturally.

At various times the spread of technology also creates havoc with economies. One effect is that the wealthiest societies can lose their relative advantage (which often comes with a wealth premium) and find themselves falling behind. Another, less frequent but very dramatic, effect is a technological revolution. In fact there is never really a technological revolution per se. The technological development is usually an incremental evolutionary development where previous ideas are merely added to or brought together in a different way. Every now and then, though, one of these evolutionary increments changes a societies economy manifestly. The technological revolution is an economic revolution caused by the evolution of technology.

There are many examples of this. The medieval industrial revolution, the post-enlightenment industrial revolution, the information age, etc. A more simple, and yet no less dramatic, revolution brought great wealth to renaissance Holland (and from there to England). Again it was simply some different ideas brought together (many from the far East) in an innovative way. And yet the improved automation and efficiency in the textile industry created huge wealth for the Northern Europen economies that had previously only produced raw wool.

The best thing about this example, however, is to demonstrate how quickly we move on. Textiles made enormous wealth for the Dutch low countries and England (which they cannily leveraged as new technology presented opportunity). Today, though, the production of textiles and apparel is ho-hum. The production of material and clothing is now done by rich country and poor. The production of textiles is no more an indicator of the likely wealth of a country than is being a country.

As wealth has moved on technological development has moved with it (increasing as well with both population growth and literacy). Now more than ever wealth doesn't so much come from digging stuff out of the ground or growing things but by making things that are ever more complex to build but simple to operate. The key indicator of wealth now is the sheer amount of 'value add' that is built into everything that a country makes.

It isn't as simple as deciding one is going to build clever things, though. While it isn't necessary for a country to be poor because of a lack of resources it seems that the best producers do have history with their production. It seems general common sense that societies that have 'grown' up with high-technology industries know those industries better than anyone else. Those that try to follow them tend to become more of a value added labour resource rather than really participating in the wealth.

The problem is that, eventually, all industries become common and commodotised. Unless a country is on the ground floor of new industries (useful and desirable industries of course) then it is destined to become increasingly irrelevant.

New Zealand has a long history with food technology (especially dairy) and that expertise propelled New Zealand to near the top of the per capita wealth rankings. But, many countries do food processing now. New Zealand is still among the very best, there is no doubt. Unfortunately, that may become the commercial equivalent of the Queen of the Pigs.